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[1999] FCA 896
Federal Court of Australia
1998-06-04
Madgwick JJ, Heerey J, Spender J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 After giving judgment on the principal issues between the parties on 25 March 1999, I was asked to receive submissions on costs. Written submissions were subsequently received. These are my reasons on costs. 2 The applicant failed on the application because at the end of the day, notwithstanding the extensive negotiations between the parties and the events of 12 May 1994, I was of the opinion that a concluded contract had not been reached. In the event that I was wrong on that question, I assessed damages at $800,000. I would have allowed interest at 8 per cent from 1 January 1995 on that sum. The effect of my conclusions was that the applicant failed on liability but I accepted the applicant's case on damages and rejected the respondent's claim that, had the applicant performed the contract to build the "Dockside Stage III" project, it would have made a loss. 3 It was submitted on behalf of the applicant that the applicant should be awarded its costs of the damages claim. It was submitted that there is no inflexible rule that a successful respondent must get its costs; the court has jurisdiction to make a costs order against a successful party: Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129. 4 It was said on behalf of the applicant that the case involved difficult questions of fact and law, the answers to which were not readily apparent, and the court made no criticism of the applicant's witnesses. While it was submitted that the respondent in its defence to liability issues was successful, its defence to the damages issues failed. It was therefore submitted that, in those circumstances, it was not appropriate to make an order of costs in favour of the respondent, but rather, appropriate to award the applicant its costs of the damages issues. 5 In my opinion, the question of damages occupied a considerable part of the trial. Section 43(2) of the Federal Court of Australia Act 1976 vests the order of costs "…in the discretion of the Court or Judge." The Federal Court Rules do not purport to qualify that discretion. The only rule to which reference is necessary is O 62 r 15 whereby, where costs are reserved, those costs follow the event "…unless the Court or a Judge otherwise orders." 6 It is within the discretion of the trial judge to award only a portion of a successful party's costs if the conduct of that party in a trial is such as to unreasonably prolong the proceedings: Latoudis v Casey (1990) 170 CLR 534; Cummings v Lewis (1993) 113 ALR 285; and Smallacombe v Lockyer (1993) 114 ALR 568. 7 I do not think that the fact that the respondent made late disclosure in filing a supplementary list of documents on 14 January 1997, some time well prior to the trial, has much relevance on the question of costs. 8 Alternatively, it was submitted by the applicant that costs should lie where they fall. In respect of this alternative submission, it was submitted that, given the respondent succeeded in its defence and the applicant succeeded in respect of damages, justice would be done if there were no orders as to costs. 9 In the further alternative, it was submitted that the applicant should pay the respondent's costs in relation to liability issues only. 10 For the respondent it was submitted that, in the light of there being two offers to settle (which were rejected), it should recover its party and party costs to 19 November 1996, the date of the first offer, or, alternatively, to 14 July 1997, the date of the second offer, and thereafter on an indemnity basis. 11 The offer of 19 November 1996 was for $20,000 plus interest and costs. The offer of 14 July was for $150,000 for claim and costs, $45,000 for interest, and $5,000 for contingencies: a total of $200,000. On the application, the applicant recovered nothing, so that both offers proved to be more than in fact was awarded to the applicant. Whilst the offers were made under O 23 of the Federal Court Rules, those rules do not contemplate the situation where the respondent is entirely successful: Coshott v Learoyd [1999] FCA 276. 12 Nonetheless, as I indicated in Smallacombe v Lockyer (supra) the Court is entitled to consider offers of compromise in the exercise of its discretion on costs. See also J S Hayes & Associates Pty Ltd v Kimberly Clark Australia Pty Ltd (1994) 52 FCR 201 at 206; Messiter v Hutchinson (1987) 10 NSWLR 525 at 529. 13 Pursuant to O 23 r 11(4), if a respondent refuses an offer to settle by an applicant and the applicant obtains a judgment no less favourable than the offer, the applicant is entitled to party and party costs to the date of the offer and indemnity costs thereafter. It was submitted on behalf of the respondent that an equivalent order ought to be made in this case. 14 There is a difference of opinion in the authorities as to whether non-acceptance of an offer which the ultimate result established had favoured an offeree, was sufficient of itself to demonstrate unreasonable conduct and an entitlement to indemnity costs. In MGICA v Kenny & Good (1996) 140 ALR 707, Lindgren J said at 710-711: "In John S Hayes, Hill J declined to order indemnity costs in favour of a respondent, noting that the case was not one in which the applicant had had 'no chance of success': at FCR 206. His Honour concluded that it was not 'so unreasonable' (at FCR 207) for the applicant to have brought and continued its case against the respondent that indemnity costs should be ordered. Similarly, in Sanko Steamship Co Ltd and Grand Slam Enterprise Corp v Sumitomo Australia Ltd (Fed C of A, 7 February 1996, unreported) (Sanko), Sheppard J said that recovery of costs on the usual party and party basis should 'only be departed from where the conduct of the party against whom the order is sought is plainly unreasonable' (emphasis supplied): p 9.
A different approach was taken by Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corp (SC(NSW)), 20 June 1996, unreported), and raises a question of principle. His Honour expressed disagreement with Hill J in John S Hayes and Sheppard J in Sanko, in so far as their Honours would require an applicant for indemnity costs to prove that the non-acceptance of its offer was unreasonable. Rather, Rolfe J took the view that the non-acceptance of an offer which the ultimate result established had favoured the offeree, itself, prima facie, demonstrated unreasonable conduct and an entitlement to indemnity costs with the result that the offeree bore the onus of showing why indemnity costs should not be ordered.
With respect, I would follow the two single judge decisions in this court unless I thought that they were plainly wrong. I do not think that they were, and will therefore follow them." 15 The difference in approach by Lindgren J to that of Rolfe J in the above situation has been further exemplified by the judgment of Lehane J in Flemington Properties Pty Limited v Raine & Horne Commercial Pty Limited (11 February 1998, unreported), and the recent judgment of Shepherdson J in Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Limited (No 2) [1999] 1 Qd R 519. The difference, however, is whether non-acceptance of a favourable offer is of itself a prima facie demonstration of unreasonable conduct and an entitlement to indemnity costs, or whether it was mere evidence of such conduct and entitlement. In Black v Lipovac (4 June 1998, unreported), the Full Court (Miles, Heerey and Madgwick JJ) said: "In reality there is not a substantial difference between the two views; both accept that the reasonableness of the conduct of the offeree, viewed in the light of the circumstances which existed when the offer was rejected, is relevant to the exercise of the discretion to award indemnifying costs." 16 The Full Court in Black v Lipovac endorsed the observation of Byrne J in the Supreme Court of Victoria in Mutual Community Ltd v Lorden Holdings Pty Ltd, an unreported judgment of 28 April 1993, where Byrne J said: "The policy of the Court is to encourage litigating parties to undertake genuine settlement negotiations and, for that purpose, to face up to serious offers of settlement.
The response of a litigant in receipt of an offer of settlement will always be affected by the prospect that the sum which the Court might order including party and party costs may be less advantageous than the terms of the offer. Experience, however, shows that this prospect alone is not always sufficient to compel a litigant to face up to the offer. The further prospect of a super-added costs penalty if a reasonable offer be not accepted is a salutary inducement to an offeree to undertake this often painful task." Generally, a successful party is entitled to an order for costs, but that is not always the case. An extreme example is Verna Trading Pty Ltd v New India Assurance Co Ltd (supra). In that case, the defendant won on the merits, albeit merits flowing from the construction of an insurance policy. Yet, as noted by Ormiston J: "…it suffered three penalties flowing from a decision which would normally result in the costs following the event, that is, the defendant would obtain its taxed costs. The three penalties were that (1) it was deprived of any costs of defending the action successfully, (2) it was ordered to pay the unsuccessful plaintiff's costs of the proceedings, up to the end of the first day of a two day trial, and (3) it was ordered to pay those costs to the plaintiff on a solicitor/own client basis." Ormiston J noted: "No doubt it is convenient and in many cases appropriate that the exercise of the trial judge's discretion should be difficult to impeach…Nevertheless, I would see it as undesirable that a successful litigant, who was, on the merits, wrongly vexed with litigation, should be required to pay the three penalties I have referred to, without receiving a cent by way of costs in respect of its successful defence." The costs orders in that case by the primary judge were not disturbed. 17 In Susan Pender Jewellery Pty Ltd v Mirage (Operations) [1997] 44 FCA 4 February 1997, I expressed my reservation about apportioning costs orders on the basis of success on individual issues. Toohey J in Hughes v West Australia Cricket Association [1986] ATPR ¶ 40-748 at 78,136, after setting out the principles relevant to the exercise of the discretion as to costs, said: "There is no difficulty in stating the principles; their application to the facts of a particular case is not always easy. Also it is necessary to keep in mind the caveat by Jacobs J in Cretazzo v Lombardi at p 16. His Honour sounded what he described as 'a note of cautious disapproval' of applications to apportion costs according to the success or failure of one party or the other on the various issues of fact or law which arise in the course of a trial. His Honour commented: 'But trials occur daily in which the party, who in the end if wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues. ' " 18 In Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 169, Burchett J, considering the case of a successful defendant who had failed in respect of some issues, said: "It does not necessarily follow that the costs orders otherwise appropriate should be affected. A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment." 19 In Henderson v Amadio, (Heerey J, 22 March 1996, unreported), his Honour, having referred to these observations by Burchett J at 494 said: "In my respectful opinion the same reasoning applies to a successful plaintiff who fails on some issues. To extend Burchett J's military metaphor, the plaintiff is not to be regarded as culpable because he attacked at points of the defendant's fortifications other than the place where success came. He is not to be forced, at his peril in respect of costs, to abandon every flank attack. " 20 I nonetheless think that this is a case within that category of cases referred to by Burchett J in the passage set out above where there ought to be some reduction in the costs that a successful party gets. 21 But for the circumstance of the offers of compromise, I would have given recognition to the time and expense occupied by the damages aspect of the trial. I would not have made any costs order in favour of the applicant, nor would the success of the respondent be properly recognised by permitting the costs to lie where they fell. I would have ordered the applicant to pay two-thirds of the costs of the respondent, to be taxed if not agreed. Such an order, of course, refers to costs on a party and party basis. 22 The offers of compromise complicate the position considerably. But for the failure of the respondent on the aspect of damages, which occupied a significant portion of the trial, it would have been appropriate in my view to award the respondent its costs up until the date of the first offer of compromise on a party and party basis, and thereafter on a solicitor/client basis. However, having regard to the failure of the respondent in respect of the damages aspect of the trial, it would in my view be quite unfair to give it its costs in respect of this aspect of the trial, and even more unfair to give it its costs on an indemnity basis. 23 In the light of these considerations, it seems to me that it would be just if in all the circumstances I order the applicant to pay the respondent's costs, to be taxed if not agreed. This of course is an order for costs on a party and party basis. Nothing has been put before me to suggest that the ordinary operation of O 62 r 15 should be displaced in the present case. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.
Counsel for the Applicant: E J P F Lennon QC
Solicitor for the Applicant: Clayton Utz
Counsel for the Respondent: D J S Jackson QC
Solicitor for the Respondent: Corrs Chambers Westgarth
Date of receipt of submissions on costs: 7 May, 24 May, 4 June 1999
Date of Judgment: 2 July 1999
Graham Evans Pty Ltd
Stencraft Pty Ltd
(1990) 170 CLR 534
(1993) 113 ALR 285
(1993) 114 ALR 568
(1994) 52 FCR 201
(1996) 140 ALR 707
(1988) 81 ALR 166
(1987) 10 NSWLR 525